Grade inflation and college investment incentives

Grade inflation is widely viewed as detrimental, compromising the quality of education and reducing the information content of student transcripts for employers. This column argues that there may be benefits to allowing grade inflation when universities’ investment decisions are taken into account. With grade inflation, student transcripts convey less information, so employers rely less on transcripts and more on universities’ reputations. This incentivises universities to make costly investments to improve the quality of their education and the average ability of their graduates. [Link. h/t Ben Kuhn.]

I’ve only read the column rather than the full paper, but it sounds like their model simply posits that “schools can undertake costly investments to improve the quality of education that they provide, increasing the average ability of graduates”.

But if you believe folks like Bryan Caplan, then you think colleges add very little value. (Even if you think the best schools do add more value than worse schools, it doesn’t at all follow that this can be increased in a positive-sum way by additional investment. It could be that all the value-added is from being around other smart students, who can only be drawn away from other schools.) Under Boleslavsky and Cotton’s model, schools are only incentivized to increase the quality of their exiting graduates, and this seems much easier to accomplish by doing better advertising to prospective students than by actually investing more in the students that matriculate.

Wellesley College used to be one of the worst offenders. In 2000, the average course grade awarded was a 3.55, an A-minus. Then, in 2003, Wellesley decided enough was enough. The college created a new rule: average final grades in classes at the introductory or intermediate level (a 100-level or 200-level class, in college catalogue terminology) should be no higher than a B-plus…

Research on the effects of the change, published in this month’s Journal of Economic Perspectives, suggested it successfully reversed the upward trend in GPAs. Here’s what the college learned.

When you require professors to give lower grades, they give lower grades…

Students were more likely to major in economics and the sciences…

Students weren’t as happy with their professors…

Black students were disproportionately affected…

Some students report that lower grades could hurt their job prospects…